Did you know that more than two borrowers can be on a mortgage? While it’s not your typical situation, it does happen.
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There’s no legal stance on how many people can be on one mortgage. In other words, there’s no limit. But when it comes to the lenders, they often have a say in the maximum amount of borrowers they will allow.
Your approach to a lender may be a little different if you have more than two borrowers for your loan too. Lenders are set up to process loans for two people, meaning they pull credit reports for two people and evaluate income and debt for two people. Keep reading to learn how the lender might proceed with more than two borrowers.
What All Borrowers Need
Just as is the case with two borrowers, no matter the number of borrowers on your loan, you must provide credit information on each borrower. Again, just like with two borrowers, the lender will use the lowest middle credit score of all of the borrowers.
This means that if you have someone on your loan with a 500 middle credit score, that’s what lenders will use despite the fact that you may have a 750 credit score. In this case, the lender probably wouldn’t just decline your loan altogether. Instead, they would suggest that you leave the additional borrower off the loan that has the 500 credit score. The middle score of the remaining borrowers would then be used.
You’ll also need enough income between all borrowers to cover the debts of all borrowers. Keep in mind that you’ll want to know each person’s financial details. For example, if one borrower in the group has a crazy amount of credit card debt, it could send your debt ratio soaring, which may make it difficult to get approved.
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Finding a Lender
The tough part about having more than two borrowers on a loan is finding a lender. Fannie Mae technically allows up to four borrowers, as that’s what their system will accept. Any more than four borrowers, you’ll need a lender that performs manual underwriting. If you ask around right now, you probably will only find one or two banks in your area that offer manual underwriting.
You may be better off with smaller banks and/or credit unions. They tend to offer specialized programs, including those that are for more than two borrowers. Shopping around is key so that you can also get the best deal on the loan.
Think of the Legal Aspects
Putting the mortgage aside, you still have to worry about the legal component of owning a home with more than one other person. An attorney can help you with all aspects of this scenario, including how you will take title as that can affect your ownership down the road and after your death, should you pass away while still owning the home.
What happens when one of you wants out of the ownership? This is something your attorney will cover in a legal document. You need clear-cut plans should someone want to bail before you sell the home. Speaking of selling the home, you also need a clear-cut agreement on how the proceeds will be divvied up when you sell the home.
It’s important to understand that you can’t just take yourself off the mortgage and assume your liability ends. The other borrowers must refinance the loan to get you off it. You also must be legally removed from the title with a recorded Quit Claim Deed with the county. Of course, if you want off the loan, you probably want to be bought out of your portion of the home, which will require legal counsel.
Buying a home with more than two people can get complicated. If it’s the only way you can afford the home or you absolutely want to buy a vacation home with friends, make sure you have legal counsel. This way you will know all of your rights and what you have to do to protect yourself.
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